“Confiscate, Secretly and Unobserved”

“Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some.”

John Maynard Keynes penned these words after World War I (The Economic Consequences of the Peace); and all Fed governors, certainly Chairman Ben Bernanke, should be required to read them out loud each morning.

When inflation isn’t particularly hot, it’s praised as something desirable, though in its gradual, nearly invisible way it continues its insidious work. And the inflation data released today (BLS PDF) fall into that category: flat for the month and up 2.3% over the last 12 month. It will trigger palliative lingo such as “moderate” or “well anchored,” and any spikes would be “temporary.” But spikes in inflation, along with moderate, well-anchored, and temporary inflation, unless followed by deflation, become permanent. Result: a CPI-U index value of 230.085, where “100” represents price levels of 1982-84. Hence, 130% inflation over the last 30 years. In the process, the Fed “debauched” the dollar, to use Keynes’ term, by 56.5%.

CPI without food and energy was up .2% for the month and 2.3% for the year. While again in the soothing category of “moderate,” it shows a pernicious trend: the consistent rise in core inflation, part of it imported from China and other countries:

Energy was a mixed bag: overall -1.7% for the month and +.9% for the year. Gasoline, which finally dropped 2.6%, was the hot topic. But there was one item that will soon contribute to inflation: utility gas services (natural gas), -1.8% for the month and -11.6% for the year. After a long and steep decline, natural gas hit a 10-year low on April 19, of $1.91 per million Btu—far below production cost. The impact has been brutal, rig count is falling off a cliff, and production companies are reeling. It has been a massacre. Read.... Havoc and Opportunity in Natural Gas.

Healthcare costs are a perennial inflation nightmare. Medical care services rose .4% for the month and 3.7% for the year; health insurance jumped 1% for the month and 12.4% for the year. The industry appears to be immune to free-market price constraints. Over the last 30 years, medical inflation, according to a study by the Commonwealth Fund, was close to 700%. And healthcare costs have ballooned to over 17% of GDP. At about $8,000 per capita, healthcare eats up a significant part of a family’s income, either directly or indirectly, even if the family is securely ensconced in the middle-class.

And there are ... televisions! Symptom of the many quirks in the index. They dropped 19.6% for the year, continuing a decade-long decline that began when flat-panel TVs hit the market. Back then, if you wanted a 48-inch TV, you could choose between a CRT based TV for $450 or an amazing flat panel TV for around $7,000. The index picked up the new technology at the introductory price, and as that price collapsed, flat-panel TVs had a deflationary impact on CPI—though consumers ended up paying several times more than they'd paid for a TV before!

There are a few winners in an inflationary environment, as Keynes pointed out. It allows companies to show a sales increase. Aspiring or actual billionaires favor inflation because they no longer struggle with paying for tuition, healthcare, or retirement. They're in it for the game, and the game is to make more billions—and inflation speeds up the process. Debtors favor inflation, but only when central banks push yields below free market rates, thus blocking creditors from pricing inflation into the loan. And Congress, which refuses to live within its means, loves inflation; it’s the cowardly way of mitigating the consequences of endless budget deficits.

For the rest, inflation is an insidious hidden tax. There are no monthly statements or invoices. It quietly eats away at assets. It’s a nasty tax on wage earners whose wage increases haven’t kept up with inflation since the real-wage peak of 2000. And when combined with the Fed’s zero-interest-rate policy, inflation turns into financial repression. It hits savers, retirees, and pension funds. It pushes desperate people into Ponzi schemes. It punishes the prudent middle-class family that is trying to save for college or healthcare expenses. But banks and the government get money for free.

And so John Maynard Keynes continues his essay: “As the inflation proceeds..., all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.” A gamble and a lottery, indeed! Read Chriss Street’s hard-hitting article.... The JP Morgan Fiasco: Higher Interest Rates Ahead.

If interest rates go up it's game fucking over. However, ZIRP suggests that there is no cost associated with creating capital out of thin air without adding anything of real value to the system. Common sense should tell you that this is immpossible and only leads to inflation. This is the rock and hard place that all central banks and governments now find themselves stuck between.

Same as it ever was. In the short term, yes. Then gold will be "revalued" yet again. Gold has remained a safe store of wealth for 6000 years and will continue to do so regardless of whether the system crashes or not, so fucking what. Do you have a point Gully or are you just trolling again?

My employees and I welcome a crash, we know that the products of our labor have real value. Better hope you paper retains some value if you want to exchange it for some of our produce. That is the only thing a troll like you should be concerned about.

As the silver Rhino points out non-leveraged positions don't have to "do" shit. Good luck moving that buffalo. The dollar-cost avergae of my gold is under $400 an ounce and I have almost no debt.

According to John Locke, ”The state of nature has a law of nature to govern it, which obliges everyone: and reason which is that law, teaches all mankind who will but consult it, that being all equal and independent, no one ought to harm another in his life, health, liberty or possessions…“

Regarding Locke's writings on slavery, William Uzgalis at Oregon State writes "Slavery is the state of being in the absolute or arbitrary power of another. On Locke's definition of slavery there is only one rather remarkable way to become a legitimate slave. In order to do so one must be an unjust aggressor defeated in war. The just victor then has the option to either kill the aggressor or enslave them. Locke tells us that the state of slavery is the continuation of the state of war between a lawful conqueror and a captive, in which the conqueror delays to take the life of the captive, and instead makes use of him. This is a continued war because if conqueror and captive make some compact for obedience on the one side and limited power on the other, the state of slavery ceases. The reason that slavery ceases with the compact is that ”no man, can, by agreement pass over to another that which he hath not in himself, a power over his own life.“

I apologize for the lengthy cut and paste, but these are important philosophical issues that need to be continually addressed to maintain a civil rule of law and so prevent a reversion into anarchy.

As someone who oversees several thousand acres, I (for once) agree with your conclusions about land. At least until the police state begins and the government takes control by force or civil unrest breaks out and hungry idiots jump your fences. Don't think that can happen? You don't know your history.

Moreover, land still has couterparty risk, as pointed out above. Don't forget taxes either or all the other costs associated with maintaining that land in a productive fashion, and there are many. What's the counterparty risk on PMs again? think about that for a bit.

What's the counterparty risk on PMs again? think about that for a bit...

Depending on the hoard, location and security for starters. Next would be the geopolitical climate of the times and place of the hoard. In short, it comes down to the voluntary adherence to a set, uniform and enforced rule of law applied equally to all, the governing authorities as well as those so governed.

"While boasting of our noble deeds, we are careful to control the ugly fact that by an iniquitous money system, we have nationalized a system of oppression which, though more refined, is not less cruel than the old system of chattel slavery." - Horace Greely

"... Paper money will invariably operate in the body of politics as spirit liquors on the human body. They prey on the vitals and ultimately destroy them." "Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice." (George Washington - letter to J. Bowen, Rhode Island, Jan. 9, 1787)

"Those few who can understand the system (check book money and credit) will either be so interested in its profits, or so dependent on it favors, that there will be little opposition from that class, while on the other hand, the great body of people mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear it burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests." - unknown